Sass v. Cohen ( 2019 )

Filed 3/7/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
DEBORAH SASS, B283122
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC554035)
v.
THEODORE COHEN,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Los
Angeles County. Frederick C. Shaller, Judge. Vacated and
remanded with instructions.
Law Offices of Robert S. Gerstein and Robert S. Gerstein
for Plaintiff and Respondent.
Law Offices of James P. Wohl, James P. Wohl, and Eileen
P. Darroll for Plaintiff and Respondent.
Snell & Wilmer, LLP, Keith M. Gregory, and Todd E.
Lundell for Defendant and Appellant.
******
When a plaintiff files a lawsuit, the defendant can opt not
to respond; the result is a default judgment for the plaintiff.
(Code Civ. Proc., §§ 580, subd. (a), 585, subds. (a) & (b).)1
However, the relief awarded in such a default judgment “cannot
exceed” the “type and amount of relief” sought in the plaintiff’s
operative pleadings. (§ 580, subd. (a); Becker v. S.P.V.
Construction Co. (1980) 27 Cal.3d 489, 493-494 (Becker).) This
case presents two unsettled questions: (1) May a default
judgment be entered for an amount in excess of the demand in
the operative pleadings when the plaintiff seeks an accounting or
valuation of a business; and (2) Should the comparison of
whether a default judgment exceeds the amount of compensatory
damages demanded in the operative pleadings examine the
aggregate amount of non-duplicative damages or instead proceed
on a claim-by-claim or item-by-item basis? We hold that actions
alleging an accounting claim or otherwise involving the valuation
of assets are not excused from limitations on default judgments
and, in so doing, add our voice to the growing chorus of cases so
holding. We also hold that the amounts of damages awarded and
demanded are to be compared on an aggregate basis.
Applying these principles, the default judgment awarding
compensatory damages of $2,806,532 in this case exceeds the
$987,500 in compensatory damages specified in the operative
complaint. It is void to the extent of the overage, and we remand
to the trial court to determine whether to give the plaintiff the
option to accept a modified default judgment in this reduced
amount or to amend her complaint to demand greater relief
1 All further statutory references are to the Civil Procedure
Code unless otherwise indicated.
2
(thereby giving the defendant an opportunity to avoid a default
by responding to her amended pleading).
FACTS AND PROCEDURAL BACKGROUND
I. Facts
In May 2006, Theodore Cohen (Cohen) met Deborah Sass
(plaintiff) in London. Cohen was married, but he and plaintiff
began dating.
The next month, Cohen asked plaintiff to move to the
United States with him so they could “merge their lives.” In
exchange, Cohen promised that “all property and income
acquired . . . during [their] relationship would be joint property”
and that he would financially take care of her for the rest of her
life. Cohen reaffirmed these promises in April 2011. Plaintiff
accepted Cohen’s offer and moved in with him.
Cohen thereafter bought two houses. In late 2007, Cohen
bought a condominium on Hollywood Boulevard in Los Angeles
(the Hollywood house), telling plaintiff they would co-own the
property. And in the summer of 2011, Cohen bought a house on
Oakley Drive in Los Angeles (the Oakley house), and again said
he and plaintiff would be co-owners.
Cohen also brought plaintiff into his business dealings. In
2006, Cohen formed a “digital entertainment consulting
company” called Tag Strategic, LLC (Tag). Cohen was Tag’s sole
member. Cohen told plaintiff he wanted her to help him build
Tag’s business and promised to give her equity in the company.
Toward that end, Cohen initially named her as Tag’s Vice
President of Client Relations and later named her its Global
Head of Business Development. After plaintiff worked for Tag for
several years for no salary at all, Cohen in January 2009
promised to pay her a “token” salary of $5,000 per month. He
3
ended up paying her $2,000 per month for a total of 10 months,
even though she was working 70 hours a week for the company.
In June 2011, plaintiff bought stock in a restaurant and
lounge, but put it in Cohen’s name.
In December 2012, plaintiff moved out of the Oakley house
where she and Cohen were living. In April 2013, Cohen stopped
paying plaintiff’s living expenses and plaintiff stopped working
for Tag.
In October 2013, Cohen sold the Hollywood house but did
not share any of the sale proceeds with plaintiff.
II. Procedural Background
A. The operative complaint
In August 2014, plaintiff sued Cohen and Tag.
In the operative, Second Amended Complaint (SAC),
plaintiff alleged seven claims: (1) breach of contract against
Cohen, for breaching their so-called Marvin agreement2 to share
the title on both houses, the sale proceeds from the Hollywood
house, Tag’s profits, and Cohen’s income; (2) fraud against Cohen
and Tag for Cohen’s misrepresentations that he would put
plaintiff’s name on the deeds to both houses and that she would
earn equity in Tag; (3) failure to pay plaintiff’s wages between
May 2006 and April 2013 against Tag; (4) waiting time penalties
under Labor Code section 203 for nonpayment of those wages
against Tag; (5) quantum meruit against Cohen and Tag for the
value of plaintiff’s services to Tag; (6) an accounting of the value
2 A Marvin agreement is a contract made by a romantically
involved but unmarried couple to pool their earnings, share
property acquired, and provide one another support during the
term of their relationship or thereafter. (Marvin v. Marvin (1976)
18 Cal.3d 660, 674-675, 684.)
4
of the two homes, Tag, Cohen’s income, and the
restaurant/lounge stock against Cohen and Tag; and (7) a
violation of the Uniform Fraudulent Transfer Act3 (Civ. Code,
§ 3439 et seq.) against Cohen and Tag, for shuttering Tag after
the breakup to frustrate the collection of any judgment.4
Plaintiff’s prayer for relief for each of these claims in the
SAC sought damages “in a sum to be proven at trial.” However,
plaintiff elsewhere in the SAC demanded (1) her “share of profits”
in the Hollywood home, which she alleged was “in excess of
$300,000,” (2) “no less than $3,000,000, which represents 50% of
the fair market value of (a) the Hollywood [h]ouse received by . . .
Cohen when he sold that house . . . and (b) the Oakley [h]ouse,”
(3) “at least the sum of $700,000, which represents 50% of the
revenue brought to Tag by [p]laintiff, along with an unknown
sum which represents 50% of all profits earned by Tag,” (4)
unpaid wages from May 2006 to April 2013 less the “10 payments
of $2,000,” and (5) $25,000 for the stock in the restaurant/lounge.
In the alternative, plaintiff demanded a constructive trust over
“all income and property earned and purchased by [Tag and
Cohen] since May 2006.” On the fraud claim, plaintiff also
sought “punitive and exemplary damages in a sum to be
determined at trial.”
3 This statutory scheme was amended after plaintiff filed the
SAC, and is now referred to as the Uniform Voidable
Transactions Act. (Stats. 2015, ch. 44, § 3 (Sen. Bill No. 161
(2015-2016 Reg. Sess.), eff. Jan. 1, 2016).)
4 Plaintiff had previously alleged a claim for breach of
fiduciary duty against Cohen, but deleted that claim in the SAC.
5
B. Default, prove up and entry of default judgment
Neither Cohen nor Tag responded to the SAC, despite the
trial court advising Cohen at a hearing on a discovery matter
that his response was past due.
In February 2016, plaintiff filed and served on Cohen a
Notice of Punitive Damages in which she “reserve[d] the right to
seek $4,000,000 in punitive damages.”
On March 10, 2016, the trial court’s clerk entered default
as to Cohen and Tag on the SAC.
On October 4, 2016, the trial court conducted a “prove up”
hearing for plaintiff to substantiate her damages.5 Plaintiff
submitted the declaration of a forensic accountant who
determined that plaintiff’s share of the total value of the two
houses, Tag, Tag’s profits, her unpaid wages, and the
restaurant/lounge stock came to $6,351,000.
The trial court issued a tentative ruling awarding plaintiff
actual damages of $2,806,532, prejudgment interest of
$43,547.70, and punitive damages of $88,984. Based chiefly on
plaintiff’s expert’s calculations, the trial court calculated the
actual damages as follows: (1) $126,504, which is one half of the
$253,008.87 in proceeds from the sale of the Hollywood house; (2)
$2,099,610, which is one half of the $4,199,219 ongoing value of
Tag; (3) $444,918, which is one half of Tag’s bank account
balances on January 4, 2013 (which the trial court used as the
proxy for Tag’s profits); (4) $120,000 in unpaid salary, which is
either one half of the promised monthly salary of $5,000 for 52
months (from January 2009 when that salary was promised to
5 Cohen telephonically appeared at the hearing and asked
that it be continued; the trial court denied his request.
6
April 2013 when plaintiff stopped working for Tag) or the full
amount of the promised salary for 28 months (from January 2011
through April 2013), less the $20,000 actually paid; (5) $5,000 in
waiting time penalties, and (6) $10,500, which is one half of the
$21,000 purchase price of the restaurant/lounge stock. Rather
than award damages for the Oakley house still owned by Cohen,
the court imposed a constructive trust and ordered Cohen to add
plaintiff to the deed as half owner as a tenant in common. The
court then awarded prejudgment interest at the statutory rate of
10 percent (Civ. Code, §§ 3287, subd. (a), 3289, subd. (b)) in the
amounts of (1) $37,951.20 for the sale proceeds from the
Hollywood house (from its sale date of October 2013 through
October 2016), and (2) $5,596.50 for the purchase price of the
stock (from its purchase in June 2011 through October 2016).
The court awarded punitive damages of $88,984, which is one-
tenth of the total amount the court used as the proxy for Tag’s
profit.6
On October 7, 2016, the trial court entered a default
judgment against Cohen and Tag awarding plaintiff the above
described relief.
C. Cohen’s motion to vacate
On January 25, 2017, Cohen filed a motion to vacate the
default judgment.7 In his reply brief in support of the motion,
6 The court also awarded plaintiff costs of $2,569.04.
7 Tag also purported to join in the motion, but the trial court
declined to consider the motion as to Tag because its corporate
status was suspended. Cohen does not challenge that ruling on
appeal.
7
Cohen argued that the default judgment was void because the
relief granted exceeded that demanded in the SAC.8 After
granting plaintiff the opportunity to respond to this argument,
the court issued a written ruling denying the motion to vacate.
Based on Cassel v. Sullivan, Roche & Johnson (1999) 76
Cal.App.4th 1157 (Cassel), the court ruled that “there is no notice
requirement for damages sought before entry of default
judgment” “where a plaintiff alleges a cause of action for
accounting and knowledge of the debt due is within the
possession of the defendant.” In the court’s view, Cassel excused
plaintiff’s obligation to plead a specific amount of damages
because her lawsuit effectively sought an accounting of Cohen’s
and Tag’s assets and income, and because Cohen and Tag had
greater knowledge regarding that valuation than plaintiff.
D. Appeal
Cohen filed a timely notice of appeal.
DISCUSSION
Cohen argues that the trial court erred in denying his
motion to vacate because Cassel was wrongly decided and, absent
Cassel’s exception, the default judgment is void because it awards
8 In his initial motion, Cohen sought relief on the grounds
that (1) plaintiff had never served him with a statement of
damages under section 425.11, (2) his default was the product of
excusable neglect under section 473, subdivision (b), and (3) the
answer he filed to plaintiff’s First Amended Complaint precluded
the entry of default on the SAC. The trial court rejected these
arguments, and Cohen does not renew them on appeal.
8
relief in excess of that demanded in plaintiff’s SAC.9 Cohen’s
argument therefore presents two questions: (1) Is Cassel good
law, and, if not, (2) does the default judgment exceed the amount
demanded in the SAC, which in this case requires us to decide
whether the comparison of the amount awarded in a default
judgment and the amount demanded in the operative pleadings is
to be determined by looking at the relief demanded as a whole or
instead on an item-by-item basis? We independently examine
each of these legal questions as well as the denial of the motion to
vacate. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 801
[questions of law]; Airs Aromatics, LLC v. CBL Data Recovery
Technologies, Inc. (2018) 23 Cal.App.5th 1013, 1018 [denial of
motion to vacate].)
I. The Law of Default Judgments, Generally
When a defendant does not respond to a plaintiff’s properly
served complaint, the plaintiff may seek the entry of default and,
thereafter, a default judgment. (§ 585, subds. (a) & (b).) The
“relief granted” in the default judgment “cannot exceed” what the
plaintiff “demanded in the [operative] complaint.” (§ 580, subd.
(a).) Under these statutes, the operative complaint fixes “a
9 Plaintiff moved to dismiss Cohen’s appeal in its entirety,
and Cohen filed a motion asking us to sanction plaintiff for filing
two motions to dismiss this appeal. We deny both sets of
motions. Disentitlement is reserved for those rare cases in which
the equities make it appropriate to dismiss an appeal because the
appellant has refused to comply with a trial court’s order (In re
Marriage of Hofer (2012) 208 Cal.App.4th 454, 459); on the record
before us, this standard is not met. Although we deny both of
plaintiff’s motions to dismiss, their filing does not in our view rise
to the level of sanctionable conduct.
9
ceiling on recovery,” both in terms of the (1) type of relief and (2)
the amount of relief. (Greenup v. Rodman (1986) 42 Cal.3d 822,
824 (Greenup); Becker, supra, 27 Cal.3d at pp. 493-494; Burtnett
v. King (1949) 33 Cal.2d 805, 810-811 (Burtnett); In re Marriage
of Lippel (1990) 51 Cal.3d 1160, 1167 (Lippel).) For these
purposes, the operative complaint must allege the amount of
“relief” sought for damages, but not prejudgment interest,
attorney fees, or costs. (E.g., Simke, Chodos, Silberfeld & Anteau,
Inc. v. Anthans (2011) 195 Cal.App.4th 1275, 1287-1288, 1290
[attorney fees and costs]; Hearn v. Howard (2009) 177
Cal.App.4th 1193, 1209 (Hearn) [prejudgment interest]; cf.
Becker, at p. 495 [attorney fees must be a type of relief sought in
operative complaint].)
These back-end limitations on the relief that may be
awarded in a default judgment enforce the front-end statutory
requirements for pleading. A complaint must set forth both (1)
“[a] demand . . . for the relief” sought and (2) “the amount” of any
“money or damages” sought. (§ 425.10, subd. (a).) There are only
three instances in which a plaintiff is statutorily prohibited from
pleading the amount of relief in her complaint: (1) when the
plaintiff is seeking damages for “personal injury or wrongful
death” (§ 425.10, subd. (b)); (2) when the plaintiff is seeking
punitive damages (ibid.); and (3) when the plaintiff is required to
use statutorily mandated forms in a marital dissolution action
that do not permit a party to plead an amount of relief (Fam.
Code, §§ 2331 [form complaint], 2104 [preliminary property
disclosure], 2105 [final property disclosure]). In the first two
instances, the amount of relief sought in a default judgment is
capped at the amount the plaintiff sets forth in a supplemental
pleading that she is statutorily authorized—and, before a default
10
may be sought, statutorily required—to serve.10 (§§ 425.11,
425.115, 585.) In the third instance, the amount of relief sought
in a default judgment has no cap, at least for those types of relief
for which the statutorily mandated form does not allow an
amount to be pled. (Lippel, supra, 51 Cal.3d at pp. 1169-1170
[form complaint]; In re Marriage of Andresen (1994) 28
Cal.App.4th 873, 879 [same]; In re Marriage of Eustice (2015) 242
Cal.App.4th 1291, 1304-1307 [preliminary declarations]; cf. In re
Marriage of Kahn (2013) 215 Cal.App.4th 1113, 1116-1119 [when
checking “Other” box on form complaint, amount of relief sought
can be alleged and thus must be alleged].)
Limiting the back-end relief on default to the relief that is
pled at the front-end is not only required by statute; it is also
compelled by due process. (Lippel, supra, 51 Cal.3d at p. 1166.)
Due process demands “notice of [a pending case] and [an]
opportunity to meet it.” (Today’s Fresh Start, Inc. v. Los Angeles
County Office of Education (2013) 57 Cal.4th 197, 212.) If and
only if a defendant receives advance notice of the type and
amount of relief sought can he make a “fair and informed”
decision whether to fight the pending case (and, in so doing, risk
10 The courts are divided over whether a supplemental filing
setting forth the amount of damages sought satisfies notice for
purposes of section 580 where no statute authorizes such a filing,
such as in cases not involving personal injury or wrongful death.
(Compare Airs Aromatics, supra, 23 Cal.App.5th at pp. 1019-1020
[supplemental filings limited to types of cases listed in statute];
Electronic Funds Solutions, LLC v. Murphy (2005) 134
Cal.App.4th 1161, 1176 [same] with Los Defensores, Inc. v. Gomez
(2014) 223 Cal.App.4th 377, 401-402 [allowing supplemental
filing “akin to” statutorily authorized notice in an accounting
case].)
11
the possibility of a judgment exceeding that relief) or to forego
that fight (and, in so doing, accept a judgment against him up to,
but not exceeding, that relief in an amount fixed by the trial
court). (Lippel, at p. 1166; Greenup, supra, 42 Cal.3d at pp. 826,
829; Eustice, supra, 242 Cal.App.4th at p. 1304; Jones v.
Interstate Recovery Service (1984) 160 Cal.App.3d 925, 928;
Andresen, supra, 28 Cal.App.4th at p. 880.)11
The notice required both by statute and by due process is
formal notice. (Greenup, supra, 42 Cal.3d at p. 826; Schwab v.
Southern California Gas Co. (2004) 114 Cal.App.4th 1308, 1324
(Schwab).) Neither actual notice nor constructive notice matters.
(Greenup, at p. 826; Airs Aromatics, supra, 23 Cal.App.5th at p.
1019; Stein, supra, 181 Cal.App.4th at p. 326.) The reason for
this insistence on formal notice is simple: Formal notice ensures
that the “maximum judgment” can be ascertained from the four
corners of the operative complaint or statutorily authorized
supplemental pleadings, thereby eliminating the messier case-by-
case inquiries into what a defendant actually knew or reasonably
should have known that would be required if actual or
constructive notice were the operative standard.
A default judgment that awards relief beyond the type and
amount sought in the operative pleadings is void. (Becker, supra,
11 A default may also be entered after a party’s responsive
pleading has been stricken as a discovery sanction. (E.g., Simke,
supra, 195 Cal.App.4th at p. 1278.) In such instances, the default
is less of an affirmative “tactical” choice not to participate in the
lawsuit in the first place (Stein v. York (2010) 181 Cal.App.4th
320, 325) and more of a sanction for making bad “tactical” choices
in how to litigate a case in which the defendant initially decided
to participate.
12
28 Cal.3d at p. 493.) Because it is void, it may be collaterally
attacked at any time. (Ibid.) The remedy is to vacate and set
aside the default judgment, not the precursor default. (Ostling v.
Loring (1994) 27 Cal.App.4th 1731, 1743.) Once the default
judgment is vacated, the trial court has the discretion to (1)
reduce the default judgment to the types and amounts of relief
properly pled in the operative pleadings or (2) give the plaintiff
the option of amending her pleadings to include the previously
omitted types or amounts of relief (but, in so doing, granting the
defendant a further opportunity to avoid default by responding to
the amended pleadings). (Greenup, supra, 42 Cal.3d at p. 830;
Airs Aromatic, supra, 23 Cal.App.5th at p. 1025; Julius
Schifaugh IV Consulting Services, Inc. v. Avaris Capital, Inc.
(2008) 164 Cal.App.4th 1393, 1398.)
II. Is Cassel Good Law?
Cassel held that a plaintiff bringing an accounting claim to
recover the value of his partnership interest in a law firm was
entitled to a default judgment of $305,690 even though his
operative complaint only alleged the type of relief, but not any
amount. (Cassel, supra, 76 Cal.App.4th at pp. 1163-1164.)
Cassel rested its holding on two propositions. First, requiring a
plaintiff to allege the amount of relief sought for an accounting
claim would be self-defeating because such claims are viable only
if the amount sought is “‘unliquidated and unascertained.’” (Ely
v. Gray (1990) 224 Cal.App.3d 1257, 1262 (Ely), quoting St.
James Church v. Superior Court (1955) 135 Cal.App.2d 352, 359;
Cassel, at p. 1161.) Second, courts have in marital dissolution
cases permitted the entry of default judgments where the
plaintiffs only alleged the type of relief in their operative
pleadings, partly because defaulting defendants in those cases
13
are “in possession of the essential information necessary to
calculate their potential exposure.” (Cassel, at pp. 1161-1164.)
Because an accounting claim involves the same sort of valuation
of assets that occurs in a marital dissolution entailing the
division of property, Cassel reasoned, the rule excusing the
necessity to plead the amount of relief sought in martial
dissolution cases should also apply to accounting claims. (Ibid.)
Cassel has been met with mixed reviews. At least one case
has endorsed Cassel. (Warren v. Warren (2015) 240 Cal.App.4th
373, 378-379.) But three others—one decided before Cassel and
two decided after—have charted a different path than Cassel and
held that plaintiffs alleging accounting claims and claims
involving valuation of assets, like any other plaintiff, may not
obtain a default judgment in excess of the amount alleged in their
operative pleadings. (Ely, supra, 224 Cal.App.3d at p. 1263;
Finney v. Gomez (2003) 111 Cal.App.4th 527, 541-545 (Finney);
Van Sickle v. Gilbert (2011) 196 Cal.App.4th 1495, 1527.)
We join the growing majority of cases rejecting Cassel and
do so for two reasons.
First, the rule precluding plaintiffs from obtaining “more
relief than is asked for in the complaint” is dictated by the “plain
language” of section 580. (Lippel, supra, 51 Cal.3d at p. 1166.) In
our view, neither of Cassel’s rationales overcomes the clear
direction from our Supreme Court that section 580 “means what
it says and says what it means.” (Ibid.; Greenup, supra, 42
Cal.3d at p. 826 [courts insist upon a “strict construction” of
section 580].) After all, noneconomic damages are notoriously
difficult to fix, but a plaintiff is still required to plead her
“educated guess” as to the amount of such damages. (§ 425.11;
Janssen v. Luu (1997) 57 Cal.App.4th 272, 279.) Because a
14
plaintiff’s ability to estimate a maximum value does not preclude
the necessity to fix the actual value, the nature of an accounting
claim does not justify a departure from section 580’s plain
language. Further, and as discussed above, the parties to a
marital dissolution case may obtain a default judgment in an
amount not alleged in the operative pleadings only where the
statutorily mandated pleadings in such a case preclude them
from alleging any such amount. (§ 425.10, subd. (b); Fam. Code,
§§ 2331, 2104, 2105; see also Finney, supra, 111 Cal.App.4th at
pp. 537, 542 [so noting].) No statute or statutorily mandated
form precludes a plaintiff from pleading an amount of relief
sought for an accounting claim or in an action involving the
valuation of assets. The marital dissolution cases do not rest on
any broader principle that parties seeking to value and divide
assets should be excused from the statutory mandate of pleading
the amount of relief sought, and Cassel was incorrect in reading
them as doing so.
Second, Cassel’s rule impermissibly substitutes actual or
constructive notice for formal notice because it predicates the
propriety of a default judgment in accounting cases on whether
the defaulting defendant knew or, by dint of his equal or greater
access to information, should have known about his maximum
exposure. (Schwab, supra, 114 Cal.App.4th at p. 1326 [noting
how Cassel’s rule turns on the defaulting defendant’s access to
information].) This rule substantially dims section 580’s “bright-
line” rule of formal notice by replacing the straightforward
inquiry into what is pled in the operative pleadings with a case-
by-case inquiry into what individual defendants knew or should
have known (Airs Aromatic, supra, 23 Cal.App.5th at p. 1018),
and in so doing, risks depriving defaulting defendants of their
15
due process-based right to proper notice of their maximum
exposure. (Finney, supra, 111 Cal.App.4th at p. 541 [so noting].)
For these reasons, we decline to follow Cassel.
III. Does the Default Judgment Exceed the Relief
Demanded by Plaintiff?
Because we decline to follow Cassel’s exception from the
general rules limiting default judgments, we must examine
whether the default judgment here “exceed[s]” “[t]he relief”
“demanded in [plaintiff’s] complaint.” (§ 580, subd. (a).) In
assessing the type and amount of damages demanded in the
operative pleadings, it is well settled that a court must separately
compare the amounts demanded and obtained for compensatory
damages, and those demanded and obtained for punitive
damages; that is because these two types of damages “differ[] . . .
in both nature and purpose” and must be separately demanded.
(Becker, supra, 27 Cal.3d at pp. 494-495; Ostling, supra, 27
Cal.App.4th at p. 1741.) It is also well settled that a court must
evaluate the relief pled against each defendant separately; that is
because a complaint must specify against which defendant or
defendants each claim is directed. (Heidary v. Yadollahi (2002)
99 Cal.App.4th 857, 868; Cal. Rules of Court, rule 2.112(4).)
But where, as here, a plaintiff has specifically enumerated
separate items of compensatory damages in her complaint
against the sole defendant before us on appeal, how is a court to
assess whether the amount of such damages obtained in a default
judgment exceeds the amount demanded in the complaint? Is the
court to undertake this inquiry on an item-by-item basis
(comparing the amount awarded in the default judgment for each
item against the amount demanded for that item in the
complaint)? Or is the court instead to conduct a more aggregated
16
inquiry (comparing the total default judgment to the total amount
demanded in the complaint)?12
A. Aggregate or itemized?
We conclude that courts should compare the total
compensatory relief granted by the default judgment to the total
compensatory relief demanded in the operative pleadings, and we
reach this conclusion for three reasons.
First, comparing the total amounts of compensatory relief
demanded versus obtained is most consistent with the statutory
and constitutional requirements of formal notice and their
underlying rationale. As noted above, default judgments are
limited to the types and amounts of relief demanded in the
operative pleadings because that limit assures that a defendant’s
decision not to contest a lawsuit (and thus to accept a default
judgment) is a “fair and informed” one. (Lippel, supra, 51 Cal.3d
at p. 1166; Greenup, supra, 42 Cal.3d at pp. 826, 829.) When
such a decision is made, it is necessarily made before the default
is entered. At that moment in time, the defendant does not know
which of the plaintiff’s claims will have merit or which alleged
items of damages will be recoverable: The only way to calculate
one’s monetary exposure from a default is to add up the various,
non-duplicative items of damages demanded; the grand total is
the price of default. Because the defaulting defendant’s decision
is made by examining the total, aggregate relief sought in the
operative pleadings, the cap set by those pleadings should be
assessed in the same manner.
12 Because this issue was only tangentially addressed by the
parties’ initial briefs, we solicited further briefing on this
question.
17
Conversely, an item-by-item approach does not accurately
reflect a defaulting defendant’s decisional calculus. The only way
to compare the compensatory relief demanded with the
compensatory relief obtained on an item-by-item basis (that is, on
a claim-by-claim or item of damage-by-item of damage basis) is to
know which claims or items of damages are meritorious, and
which are not. But such determinations of merit are not made
until long after the defendant makes the decision to default. Due
to this temporal disconnect, the item-by-item approach would
function solely as a “one-way ratchet” that would require the
total default judgment to be reduced piecemeal for each
individual claim or item of damage not eventually proven up,
even though the defaulting defendant had—at the time of
defaulting—accepted liability for the aggregate total of damages
alleged, including those later-rejected claims or items of damage.
Second, comparing the total amounts of compensatory relief
demanded versus obtained avoids penalizing a plaintiff for
pleading her damages with greater specificity because, unlike the
itemized approach, it does not cap the damages for each item on
default at the amount demanded for such item in the operative
pleadings. Because complaints with more detail provide more
information for a defendant to use in making a “fair and
informed” decision whether to respond to a complaint, the
comparison of aggregate totals ends up better serving that
defendant’s due process rights.
Third, comparing the total amounts of compensatory relief
demanded versus obtained is more consistent with the pertinent
statutes and cases interpreting them. Sections 580 and 585 refer
to “[t]he relief,” “the principal amount” or “the amount”
“demanded in the complaint” (§§ 580, subd. (a), 585, subds. (a) &
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(b)), not the amount for each claim or item of damages demanded
in the complaint. The case law also uniformly looks to the
“maximum judgment” as against a specific defendant, not the
amount for each claim or item comprising that judgment.
(Greenup, supra, 42 Cal.3d at p. 826; Lippel, supra, 51 Cal.3d at
p. 1166; Electronic Funds, supra, 134 Cal.App.4th at p. 1174.)
B. Application
In examining the total types and amounts of compensatory
relief demanded in the operative complaint, several principles
come into play. Demands for relief may be made in any part of
the complaint, not just in the prayer for relief. (Becker, supra, 27
Cal.3d at p. 494; Greenup, supra, 42 Cal.3d at p. 829.) But they
must be demands for relief; “allegations of fact which [happen to]
include numbers” will not count. (Heidary, supra, 99 Cal.App.4th
at p. 866.) A demand for relief will be included in the total relief
demanded even if it leaves it to the court to “do the math,” either
by incorporating the court’s minimum jurisdictional limit
(Greenup, at p. 830) or by providing the numbers needed for a
mathematical calculation (Electronic Funds, supra, 134
Cal.App.4th at p. 1174). Critically, however, a demand for relief
will not be counted twice just because it is alleged under two
different claims; duplicative damages recoverable under more
than one theory of liability will only be counted once. (E.g.,
Schnabel v. Lui (9th Cir.) 302 F.3d 1023, 1038.)
Applying these principles, the aggregate amount of
compensatory damages demanded in plaintiff’s SAC is $987,500.
She demanded $150,000 as her share of the proceeds from the
sale of the Hollywood house. As her share of the Oakley house,
plaintiff demanded either $2,850,000 (that is, the $3,000,000
representing her share in both houses less the $150,000 as her
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share of the proceeds from the Hollywood house) in damages or a
constructive trust. She demanded $700,000 for the value of Tag.
She demanded $120,000 for unpaid wages and $5,000 as waiting
time penalties.13 And she demanded $12,500 as her half of the
stock in the restaurant/lounge. In total, this comes to either (1)
$3,837,500 in damages, or (2) $987,500 in damages plus a
constructive trust over the Oakley house. (Cf. National
Diversified Services, Inc. v. Bernstein (1985) 168 Cal.App.3d 410,
418-419 [with an “alternative judgment, a party recovers either
the property or its value, but not both”].) The default judgment
awarded plaintiff $2,806,532 in compensatory damages plus a
constructive trust over the Oakley house. Thus, the default
judgment exceeds the amount of compensatory damages
demanded in the SAC by $1,819,032 ($2,806,532 less $987,500).
The default judgment is void to the extent of that overage.
The default judgment’s remaining awards are valid. The
default judgment awarded $88,984 in punitive damages, which is
less than the $4,000,000 plaintiff demanded. The default
judgment’s awards of prejudgment interest and costs are also
valid because their validity is not tied to what was alleged in the
operative pleadings. (Hearn, supra, 177 Cal.App.4th at pp. 1209-
1210.)
Cohen offers two categories of arguments in response.
He asserts that the amount demanded in the SAC is less
than $987,500 if the court compares what was demanded to what
13 Although the unpaid wages and waiting time penalties
arise from claims alleged solely against Tag, plaintiff alleged in
the SAC that Tag was Cohen’s alter ego, that allegation was
deemed admitted by the default, and Cohen does not challenge
it—or his liability for the judgment against Tag—on appeal.
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was obtained on default on an item-by-item basis. This is true
(although only with respect to the award representing plaintiff’s
equity in Tag), but irrelevant in light of the aggregate approach
we adopt.
Cohen also raises three specific challenges to the trial
court’s calculation of what relief was demanded in the SAC. He
argues that plaintiff did not properly demand $5,000 in monthly
wages from Tag because she alleged that this wage was only a
“token” gesture. Whether or not it was a token salary, it was still
the promised salary and hence properly demanded as an unpaid
wage. Cohen argues that the trial court’s prejudgment interest
award for the restaurant/lounge stock should be stricken, and
cites David S. Karton, A Law Corp. v. Dougherty (2009) 171
Cal.App.4th 133 (Karton). Karton struck a prejudgment interest
award in a default judgment because it was miscalculated (id. at
p. 151); here, the SAC alleged the number of months the stock
went unreimbursed prior to the entry of the default judgment
and the trial court was able to apply the statutory rate of interest
for that time period. Cohen finally argues that punitive damages
awards are disfavored, and particularly so in cases involving a
default judgment (Nicholson v. Rose (1980) 106 Cal.App.3d 457,
462-463), and are not awardable for a breach of contract (Cates
Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 61).
Despite being disfavored, punitive damages may certainly be
awarded on default if the requisite procedural steps—including
serving a supplemental notice under section 425.115—are taken.
Here, they were. And the trial court did not impermissibly award
punitive damages on Sass’s breach of contract claim; although
the allegations underlying the breach of contract claim mirror
those underlying her fraud claim, Cohen’s default is an admission
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to those allegations no matter which claim they support, and a
fraud claim properly supports an award of punitive damages
(Civ. Code, § 3294, subd. (a)).
DISPOSITION
The default judgment against Cohen is vacated. The case
is remanded with instructions for the trial court to exercise its
discretion whether to (1) reinstate the default judgment after
reducing the amount of compensatory damages awarded by
$1,819,032, or (2) vacate the underlying default and allow
plaintiff to file and serve an amended complaint demanding the
type and amount of relief she seeks. The parties are to bear their
own costs on appeal.
CERTIFIED FOR PUBLICATION.
______________________, J.
HOFFSTADT
We concur:
_________________________, P. J.
LUI
_________________________, J.
ASHMANN-GERST
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